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https://www.barrons.com/articles/BL-PENTAB-216

Private Jets at Spot Prices

By

Richard C. Morais

June 21, 2012 5:57 p.m. ET

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By

Richard C. Morais

June 21, 2012 5:57 p.m. ET

Is Warren Buffett brave? Or suffering from dementia?

Last week, in this seriously spooky environment, Berkshire Hathaway's (BRK.B) NetJets, the inventor of the fractional private jet market, placed a $9.6 billion order for 425 aircraft from Cessna and Bombardier (BDRAF).

To find out what's going on in the private jet market, I checked in with Steven Haas, an attorney at Cozen O'Connor who specializes in advising high net worth individuals on their aviation needs.

Haas says Buffett is at the right place at the right time, locking in today's low rates for an expected increase in demand later in the decade. "NetJets will clearly get very good terms," says Haas.

But almost more relevant is the fact these planes on order are midsized jets designed to fly long distances. As Penta recently reported in Jets for the Long Haul, it is cost effective to fly even mid-ranking engineers into emerging market cities via private jets, because so much time is wasted using commercial airlines to fly, say, into Brazil's or China's hinterland. Connections are that bad.

Haas further points out there are 5,500 airports in the world where private jets can land, versus 500 airports that can handle commercial jets. "That's the way to go. You have privacy, you can conduct business on the aircraft, and you have no security delays in the airport," he says.

Haas says that the economic crisis has generally spurred competition in jet aviation, and brought in a slew of new and attractive flight options. "A lot of people left the fractional market in 2009 and 2010 because they had capital tied up in their aircraft investments and they were willing to exit their programs early. They had a depleting asset, in terms of value, and they never knew when or if there would be a turnaround. For many of them they made the right decision, even though they paid a 3% or 5% remarketing fee."

He pauses before delivering his punch line, that interest in private aviation has jumped 15% to 20% since early 2011, from the very same clients who previously bailed. "The market for pre-owned aircraft when we were going through our economic downturn was in Russia, Asia, and to some extent Europe. With the markets coming back, and corporate profits going back up, I am seeing more people ready to take a leap back into the aircraft market." He doesn't even think Europe will derail the budding trend.

The reason? Deals on offer for the buyer of private jet capacity are too sweet to pass up, particularly for those who don't need a plane on demand, the premium-priced service provided by fractional ownership. "If you're someone who uses aircraft for vacation, and you know you are going to Cabo or Aspen with plenty of time to spare, there are programs where you can get discounts [and plane capacity at] almost spot charter prices."

Spearheading this new low-cost method of purchasing air time - the private jet equivalent to the advance, pre-paid APEX fare on commercial jets - is XOJet. The firm "typically had a program with a substantial upfront investment" but is now using "an asset utilization method." Because the firm has a fairly large fleet of aircrafts, it can sell flight time to the casual user at "almost 30% to 40% less than what people would be charged if they needed availability."

Flexjet, meanwhile, offers what Haas calls a walk-away lease program for the busy executive. Haas explains it as a "two year lease with no upfront money. You put money on deposit, make a lease payment, and can terminate with 90 days [notice.] This is very attractive for an individual who doesn't want to wait for a commercial airliner." For more on this and other new pricing options, see Penta's More Ways to Fly Private.

If this hasn't made private jet travel attractive again, consider that lobbying by the business jet industry now makes it possible for you to keep your flight plan private and away from prying eyes, once a privilege exclusively reserved for the national security crowd. All that is required, since last November, is a direct application to the FAA; the aviation Feds block your routing and flight status via its Block Aircraft Registration Request (BARR) Program.

Whether that's a good or bad thing depends, of course, on where you are sitting in church.

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